1. Yed-income demand xed-cross demand pes-supply ped-demand
4 alternative elasticities
Some key points to note for your answerability
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2. Yed-income elasticity of demand
IBQ for 99
May 2014 syllabus 1.2 SL
2(a) Distinguish between the concepts of income elasticity of demand (YED) and cross price elasticity of demand (XED). (10 marks)
2b) To what extent might the concepts of income elasticity of demand (YED) and cross price elasticity of demand (XED) be of significance to business organizations? (15 marks)
May 2013 syllabus 1.2 SL
2(a) Explain the factors which might influence the cross price elasticity of demand between different products.
tip: see web 204
2 (b) Examine the importance of income elasticity of demand for the producers of primary products, manufactured goods and services.
M13/3/ECONO/SP1/ENG/TZ1/XX
INCOME ELASTICITY OF DEMAND:
% CHANGE IN QUANTITY DEMANDED (Qd)
% CHANGE IN INCOME (Y)   
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3. Yed-income elasticity of demand
% CHANGE IN QUANTITY DEMANDED (Qd)
% CHANGE IN INCOME (Y)   
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4. YED + economic growth: firms like to know how the economy is likely to perform. This assists their planning for output
Income elasticity
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5. yed Y e D INFERIOR (yed, negative) See yed 1+2 in slide 3
Some key points
Y e D
INFERIOR (yed, negative)
See yed 1+2 in slide 3
ELASTIC (e >1)
INELASTIC (e < 1)
UNITARY ELASTIC (e = 1)
YED elasticity is a key issue for LDC’s commodities / primary goods tend to be income inelastic. Necessities such as food products. This is critical for LDC’s (yed 3 in diagram 3, slide 3). Increases in incomes in DC’s not a great benefit for LDC’s selling low priced food items.
Manufactured+luxury goods tend to be income elastic (yed 4). DC’s benefit by selling luxuries. More profits!
See question 2b on slide 2 above.
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6. XED CROSS ELASTICITY OF DEMAND: % CHANGE IN QUANTITY
May 2014 syllabus 1.2 SL
2(a) Distinguish between the concepts of income elasticity of demand (YED) and cross price elasticity of demand (XED). (10 marks)
2b) To what extent might the concepts of income elasticity of demand (YED) and cross price elasticity of demand (XED) be of significance to business organizations? (15 marks)
May 2013 syllabus 1.2 SL
2(a) Explain the factors which might influence the cross price elasticity of demand between different products.
tip: see web 204
CROSS ELASTICITY OF DEMAND:
% CHANGE IN QUANTITY
DEMANDED OF GOOD A
% CHANGE IN PRICE GOOD B
see exam question below (May 2004 HL2)
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7. PES
PRICE ELASTICITY OF SUPPLY: THE SIMPLE or POINT FORMULA
% CHANGE IN QUANTITY SUPPLIED
% CHANGE IN PRICE
Note: Q/X of line as in diagram 1 below has a key bearing on elasticity
IBQ for 99
Explain why the PES for primary commodities is relatively low and the PES for manufactured goods is relatively high.
Syllabus: item 25
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8. PES – which firm would you prefer to own?
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9. P e S
Shows ability of firms to adjust to changes in price. Firms that have elastic price elasticity of supply can benefit from sudden changes in price.
ELASTIC (e >1)
INELASTIC (e < 1)
UNITARY ELASTIC
( e= 1)
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10. PES COMMENT: DIAGRAM 1: S1 is inelastic
Firm has little ability to react to price changes
% change in Qs < %change in P
S2 is elastic
Firm has ability to respond to price changes
% change in Qs > %change in P
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11. PES
Factors which influence the PES: e.g. if goods are highly perishable e.g. fresh fish then the Pes is likely to be like S 3 in diagram 2. Each of
Perishability
Availability of substitutes: more substitutes then PES higher in value
Time factor: All supply is elastic over time. Time is of key importance for PES
Availibility of stocks: more stock supply is more elastic
Storage costs: higher costs less elastic
Input / FoP costs: higher costs less elastic
Alternative shapes for PES
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12. PED PRICE ELASTICITY OF DEMAND: THE SIMPLE or POINT FORMULA
% CHANGE IN QUANTITY DEMANDED
% CHANGE IN PRICE
note: focus here is on TR ( see webnote 206) 
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13. P e D
Price elasticity allows us to classify goods whereby the results of the elasticity calculation determine one of the following:
TR is key focus.
NORMAL (ped, negative)
GIFFEN (ped, positive)
ELASTIC (e >1)
INELASTIC (e < 1)
UNITARY ELASTIC ( e= 1)
Elasticity is a key issue for LDC’s.
commodities / primary goods face price inelastic demand. This is critical for LDC’s
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14. Summary 1
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15. Summary 2
Elasticity: 4 stories
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